New REIT rules set lower minimum public float, provide tax perks

The Philippines is poised to kickstart a real estate investment trust regime with the goal of unlocking new investments and boosting the growth of the property market.

REIT legislation was passed a decade ago but the market has failed to take off due to issues on taxation and public ownership.

Under the new rules, however, regulatory authorities have slashed the minimum public ownership requirement for REIT companies to a third from 67% as well as exempted the transfer of property to a REIT from paying the 12% value added tax.

A REIT gives investors the opportunity to invest in property assets that are income-generating. These include offices, hotels, shopping malls and infrastructure ventures.

Finance Secretary Carlos Dominguez said they had to make sure that the “tax incentives would not be prone to abuse.”

“We likewise wanted to be sure that the large investment funds to be raised using this mechanism will be reinvested exclusively within the country’s real estate and infrastructure sector,” he said.

For his part, SEC chairman Emilio Aquino said they hope to democratize wealth by broadening the participation of Filipinos in the Philippine real estate market. “REITs allow Filipinos to invest in the real estate market without owning actual property or the disadvantages of high transaction costs and illiquidity,” Aquino said.

“They also help investors achieve better returns or volatility outcomes by allowing property developers to diversify their portfolios,” he said.

As for the Philippine Stock Exchange, REITs are a welcome addition to its product offerings in a bid to attract more issuers and investors.

Under the amended rules, a REIT company must have at least 1,000 public shareholders each owning at least 50 shares of any class of shares and, in aggregate, at least one-third of the outstanding capital stock.